As the heat and dust settle over COP26, the new commitments made to accelerate climate change action need to be set in motion. And this means speedily evolving an economic and development agenda in which scaling up funding and a global multilateral interface has become a critical component. Climate finance has become the new buzzword.

Given the massive investments required, all engines of capital mobilisation will need to fire. The expert view is that it is not possible for domestic, overseas, private, or public capital to meet the requirements on their own.

As Anjal Prakash, Research Director and adjunct associate professor at the Bharti Institute of Public Policy, Indian School of Business, Hyderabad, says: “India has called for technology transfer and adaptation finance for the countries that have not historically contributed to climate change but are bearing the brunt. The $100-billion pledge, long seen as a minimum for climate finance, must increase over time. India’s demand is now based on the failure in delivering the $100 billion in 2020.” According to him, the demand is for $500 billion over five years for the global south.

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At the COP26 meet in Glasgow, Prime Minister Narendra Modi committed that India would achieve net-zero carbon emissions by 2070 through an equilibrium between emission and mitigation efforts. In the absence of global climate finance, India would have to divert its developmental finance to combat climate change and for adaptation.

The little over $12 billion in grants currently for adaptation finance is woefully short. By 2025, this figure needs to double at least and, ideally, treble. The industrialised north and the past polluters have more carbon space than the global south. Moreover, what little has come up as climate finance is more in the form of loans than grant-in-aid. The global north is also reluctant to share the green technology that can help the developing nations of the south in fighting climate change.

Says Gagan Sidhu, Director, CEEW Centre for Energy Finance: “It’s important to recognise that a lot of what climate finance seeks to fund are hard assets on the ground. And these kinds of assets are typically majority debt financed via extension of credit, just like any other infrastructure class. From this perspective, the ratio of domestic credit to the private sector as percentage of GDP is a pretty good indicator of how well, or not-so-well placed countries are when it comes to mobilising capital.”

Vis-à-vis this ratio, World Bank data shows that for high-income countries it is 165 per cent, for middle-income countries it is 120 per cent, and for lower middle-income countries it is only 47 per cent. So, developing countries are clearly at a disadvantage when it comes to mobilising requisite finance.

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In a recent study, CEEW’s Centre for Energy Finance (CEF) evaluated India’s investment requirements for achieving net zero by 2070. “We found that the total investment requirement over the next 50 years would be $10.1 trillion. Whereas a substantial portion of this can be met via conventional sources, CEF found that a shortfall of $3.5 trillion would remain. The study found that investment support of $1.4 trillion would be sufficient to mobilise capital to bridge the investment gap,” adds Sidhu.

The overseas green bond market has been a robust source of capital for Indian renewables developers. In the first six months of 2021, more money ($3.6 billion) was raised in the overseas debt capital markets than in any previous calendar year.

Overseas green bonds issued since 2014 have debt financed about 10 per cent of aggregate installed solar and wind capacity in India.

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In contrast, among domestic sources of (debt) capital, it is banks and non-banking financial companies that have substantially funded India’s energy transition so far. The domestic bond market has been, more or less, missing from the picture. This needs to change.

Vibhuti Garg, Energy Economist, Lead, India Institute for Energy Economics and Financial Analysis, says, “In 2021 India attracted about $20 billion of investment in renewable energy. However, it needs to accelerate its renewable energy deployment to meet its 2030 goals. Access to cheap finance will play a key role in this.”

According to Garg, India needs to look at green bonds, sustainability-linked bonds and ‘environmental, social and corporate governance’ or ESG financing. Infrastructure funds will further help in monetising assets.

With countries and financial institutions announcing fossil fuel exit policies, there will be no dearth of investment. What the government needs to do is provide a favourable policy and conducive environment so that it de-risks investment in the clean energy space.